The possibility that your marriage will end in divorce may not even cross your mind in the weeks and months before your wedding. However, if you have sunk time, sweat and money into the establishment of your business, you are leaving a lot to chance by not anticipating the damage such an event could do. While it is certainly not pleasant to consider that your marriage may not last, it is prudent to take steps to protect your business from the unthinkable.
Texas is a community property state, which means that the courts intend to divide marital property 50/50 between divorcing spouses. Even if you established your business before your wedding day, its appreciation, investments or other profits may fall under the category of community property in the event that you and your spouse divorce. This could mean devastation and even dissolution for your business if you do not take precautions against it.
Divorce-proof your business
The most obvious protection against the division of your business in a divorce is to draft and sign a prenuptial agreement. With a prenup, you can obtain your spouse’s agreement that your business is not subject to asset division in case of divorce. You may also agree to such provisions as offering a limited percentage of any joint appreciation or finding other ways to provide a fair division of assets to your spouse without damaging the business.
Of course, it is possible that your intended spouse will not agree to a prenuptial agreement, not necessarily because he or she wants part of your business but rather because your intended does not see the many benefits of having a pre-marriage contract. In this case, you may have to take other steps to protect your business, including:
- Use your business’s organizing documents to name yourself the sole owner and to specify that the business will not transfer in the event of divorce.
- Maintain diligent and thorough records of the pre-marital funds you used to establish your business.
- Keep all business expenses separate from your personal and family accounts and never mingle those funds.
- Carefully document all cash business transactions to avoid the appearance of using cash for personal expenses.
- Pay yourself a fair market income so your spouse will not claim your business owes him or her money withheld during the marriage.
It may be better to prevent your spouse from working or contributing in any capacity to the operations or expenses of the business. However, if he or she does contribute, it is important that you keep records and pay your spouse a fair salary for the work. You may also benefit from the advice of an attorney who may have other recommendations for protecting your business while you are married.
